REITs, or real estate investment trusts, offer you a way to tap into the income potential of real estate and diversify your portfolio. Here are a few things to know about this type of investment.
What are they?
REITs are companies that usually own and manage income-producing real estate, such as office buildings, shopping centers, apartment complexes, warehouses, distribution centers, data centers, and self-storage facilities.
Most REITs specialize in just one type of property, but some own a mix of property types. REITs that own and manage property receive most of their income from rents and are known as equity REITs, or diversified equity REITs if they own more than one property type.
There is another type of REIT known as a mortgage REIT that finances real estate and usually focuses on acquiring, originating, investing in, and managing real estate loans and mortgage-backed securities.
So why invest in REITs?
One reason why investors choose REITs is for their income potential. REITs are required to distribute at least 90% of their taxable income each year to their shareholders. As a result, they tend to pay higher dividend yields than some other types of companies. Keep in mind, that dividends are not guaranteed and will fluctuate in value.
Another reason why investors choose REITs is that they may help diversify a portfolio. REITs sometimes react differently than stocks and bonds to market conditions so adding them to a portfolio of stocks and bonds may help diversify the portfolio and reduce its overall volatility.
How to invest in REITs
You can invest in REITs in a few ways. One is to buy shares of a publicly traded REIT just as you would any other stock. Or you can buy shares of a mutual fund or ETF that focuses on REITs. Non-publicly traded REITs may be an option, but be aware that they involve special risks, such as lack of liquidity.
If you think an REIT may be an option for you and you are looking to diversify your portfolio, please speak with us. With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to provide clarity and calm amidst the chaos. Where there is uncertainty, we look for facts. We call our approach evidence-based investing. Call us today at 802-878-2731 to schedule a strategy session and begin building your road map to financial success.
Article published in July 2021 edition of Eye on Money. If you would like to be added to our mail list please email [email protected].